The standard deviation of the return on a stock is 25% per year. Compute the standard deviation over two years. (Round your intermediate answer to 3 decimal places.)

Question

Quizplus · Accepted Answer

When calculating the standard deviation over multiple years, we use the formula:
σ (multi-year) = σ (single-year) x √(number of years)
Thus,
σ (2-year) = 25% x √2
σ (2-year) = 25% x 1.414
σ (2-year) = 35.35% (rounded to 3 decimal places)

Therefore, choice B is the correct answer.

The Standard Deviation of the Return on a Stock Is